Google takes bold action to match aspirations

commentary Google's announcement today that the company plans to acquire Android handset maker Motorola Mobility seemingly signals the arrival of a bold new Google under the leadership of new Chief Executive Larry Page.

But it's probably more apt to say the move marks the restoration of an older Google ethos--at a new Google scale.

In earlier days, Google was undaunted by traditional business constraints. When it saw an industry it viewed as ripe for the disruption the Internet could provide, it jumped in. YouTube, Google Books, Google Voice, municipal Wi-Fi, and Google Docs are fine examples.

One hallmark of these expansions were that they were dramatically removed from the company's core search operation and search ad money-making engine. Another was that Google acted without worrying much about how established players, regulators, and potential partners would react.

A lot of more recent moves have been more circumscribed. For example, though big-ticket acquisitions have continued, they've been closer to Google's core business--Admeld and Admob for online advertising, for example, or ITA Software for airline flight search technology.

But agreeing to buy Motorola Mobility is a new surprise from Google.

Here's the biggest reason why: It offered $12.5 billion, a 63 percent premium over Motorola Mobility's stock price and a quarter of Google's cash reserves (before you factor out the $3.3 billion in Motorola cash). The price tag dwarfs the $1.65 billion acquisition of YouTube, which once seemed pretty big.

Related stories:
• Full coverage of Google's Motorola acquisition, from CNET and its sister sites

The price tag shows that Google seems to be more willing than Apple--which has $76 billion in cash on hand--to peel a lot of bills off its wad of money.

Google is taking bold risks beyond the hit to its cash reserves. It's quite possible Google isn't really serious about becoming a handset maker--the hardware business is a poor fit for Google's software focus, and perhaps it will try to spin off the business later. But even saying it's agreed to buy Motorola Mobility raises a lot of questions for other partners in the Android ecosystem. Will Motorola get earlier access to Android code, or more influence over its future?

Page offered reassurances. "Motorola will remain a licensee of Android and Android will remain open. We will run Motorola as a separate business. Many hardware partners have contributed to Android's success and we look forward to continuing to work with all of them to deliver outstanding user experiences." But it would be foolhardy not to seriously evaluate whether the in-house Android hardware partner would be more equal than others.

Google managed to convey only lukewarm enthusiasm for the company's core businesses, such as making Android-powered mobile phones.

Instead, the big value seems to be in the intellectual-property protections Google expects from Motorola Mobility's 17,000 patents and 7,500 patent applications. Google lost out to the combined $4.5 billion bid from Apple, Microsoft, and others for Nortel's swath of patents, saying there were other opportunities for its money, and Motorola Mobility evidently was one of those opportunities.

"Our acquisition of Motorola will increase competition by strengthening Google's patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies," Page said in explaining the acquisition.

Analysts surveyed by Thomson Reuters expect $4 billion in revenue from Motorola Mobility for 2011. Does Google really want to squander that business just to reassure Android partners? Surely Google shareholders about to bid adieu to a potentially plump dividend would prefer otherwise. Even if Google spins it off, there will be a long period of uncertainty in which Motorola Mobility's phones could look less appealing when carriers are looking for handsets to hawk and when Motorola is trying to expand internationally.

The acquisition's cultural match is difficult too. Motorola Mobility, a relatively old-guard hardware company, has thousands of employees. Google's emphasis puts software and the Internet above all else. It's not unlike the jarring clash of philosophies when Oracle acquired Sun Microsystems.

But there are factors that cut the risk, to be sure. The coalition of competitors that collectively bid so much for the Nortel patents means Google can give concerned antitrust regulators a highly plausible argument that the deal doesn't harm competition.

Also soothing to Android partners who compete with Motorola is the fact that they'll get some form of patent protection. Details are private, but the fact that Samsung, HTC, Sony Ericsson, and LG Electronics praised the patent protection signals that the protection is significant--at least significant enough to extract a positive statement.

Really, Google had no choice but to spend big. The patent situation is a major problem for Android. Apple is aggressively targeting Samsung and HTC, for example, apparently motivated by preserving its technology lead rather than nurturing a licensing revenue business the way Microsoft and IBM have done.

Where things would get really ambitious and risky for Google is if the company chose to push a mobile-phone business hard. That would much more seriously disrupt Android partner relations even as it resurrected painful memories of the flop that was the Nexus One attempt to revolutionize how customers bought smartphones.

Google has long said Android is part of a strategy to jump-start the mobile Net by making smartphones pervasive. There's plenty of work to be done yet in that direction, since modern smartphones are still unattainably expensive for a huge fraction of humanity. But some might want more than Google's indirect approach to using Android to make money.

"In our view, Android has already achieved its initial goal of accelerating adoption of smartphones in the marketplace, which leads to greater volume of mobile search. This trend indirectly benefits Google. Currently, Android does not generate any meaningful revenue stream for the company," said Gleacher & Company analyst Yun Kim in a research note today. "Given the level of new investment in protecting its Android franchise, we believe investors are likely to expect more direct monetization strategy of Android, which the company has yet to clearly articulate."

There's no denying a $12.5 billion acquisition is a bold move. But to check for an entirely new level of boldness and willingness to embrace risk, keep a close eye on Google's business selling phones.